Debt Levels Rapidly Mounting

I thought that the disconnect between how you and I might see the economic world and how central banks see it was perfectly captured by an audience's reaction to statements made by Timothy Geithner on his recent trip to China:

BEIJING, June 1 (Reuters) - U.S. Treasury Secretary Timothy Geithner on Monday reassured the Chinese government that its huge holdings of dollar assets are safe and reaffirmed his faith in a strong U.S. currency.

A major goal of Geithner's maiden visit to China as Treasury chief is to allay concerns that Washington's bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds.

China is the biggest foreign owner of U.S. Treasury bonds. U.S. data shows that it held $768 billion in Treasuries as of March, but some analysts believe China's total U.S. dollar-denominated investments could be twice as high.

"Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

Laughter is, of course, the perfectly rational response to Timothy's banalities about the safety of Chinese assets when parked in the currency of the country most responsible for the current crisis and leading the way in terms of fiscal and monetary recklessness.

I find it telling that regular people find hisstatements ludicrous and laughable, yet the policy folks seem to have no clue as to how far off the reservation their actions and words appear to the average person.

Maybe some Chinese students have tipped Timmy off in this regard?

One of the few journalists out there that "gets it" is Dennis Cauchon of USA Today. I have cited and referenced his work numerous times in the past. It escapes me why he alone seems able to comprehend the obvious issues that face a long-term strategy of failing to live within our current means. It's not like this is a hard concept.

At any rate, he's done it again and spilled the beans on the latest US deficit spending.

Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.

That's the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003.

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

"We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it's not backed up by a house," says David Walker, former U.S. comptroller general, the government's top auditor.

USA TODAY used federal data to compute all government liabilities, from Treasury bonds to Medicare to military pensions.

Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.

Imagine that. $6.8 trillion in new obligations were taken on, and yet, somehow, only $0.1 trillion of that was dedicated towards rebuilding the nation's vital energy infrastructure.

When we add it all up, it turns out that the only way that government debt can ever be paid off is through the actions of households. People have to work and pay their taxes. Even corporations make their money by the actions of those same people, so it can be said that it is the households that are "on the hook," for not only their own borrowing, but that of the entire government as well.

By that measure, you can get a sense of how this might all turn out by asking yourself, "What's the chance that every family could have their debt load multiplied by a factor of 4 and still pay it all off?"

If you are like me, you quickly come up with the answer of "zero," meaning that the debt cannot and will not be repaid.

Once that's out of the way, we are free to try and figure out who will be left holding that bag. I think the Chinese students have already figured that one out.

41 Comments

EXACTLY. I came to the exact same conclusion months ago after having watched the CC six times. No one will be left holding the bag, however, it's way too heavy. One day, at a bamk near you, all debts will be cancelled...

However, I find it hard to believe that all the banks will cancel all mortgage debt and credit card debt. If that were even a remote possibility, I would expect that millions of folks would be running around charging their credit cards to the hilt and mortgaging themselves to a fare-thee-well.

Hi Sam.... it's no dream, merely reality. I ask you, what other way out can you see in your crystal ball? Jubilees are not new, and I know you know that.

The millions of folk you mention don't even realise this crapola is happening, let alone know they should max out their (already maxed out...?) credit cards in preparation for the fiscal rapture... BTW, I know some people doing exactly that here in Australia, where banks are handing over cards to people on pensions unable to ever repay the debts..... it truly is extraordinary.

The mower's clutch is stuffed, and I have no money to fix it for the time being.... I live within my means, but am thankful it's winter and the grass is not growing much! Hoping for a frost to kill it all right now..

Hi Sam.... it's no dream, merely reality. I ask you, what other way out can you see in your crystal ball? Jubilees are not new, and I know you know that.

The millions of folk you mention don't even realise this crapola is happening, let alone know they should max out their (already maxed out...?) credit cards in preparation for the fiscal rapture... BTW, I know some people doing exactly that here in Australia, where banks are handing over cards to people on pensions unable to ever repay the debts..... it truly is extraordinary.

The mower's clutch is stuffed, and I have no money to fix it for the time being.... I live within my means, but am thankful it's winter and the grass is not growing much! Hoping for a frost to kill it all right now..

Mike

Hi Mike,

I hope you know I was putting you on a wee bit there.

In all seriousness, I would be amazed if there were a Jubilee. I would love to see my mortgage forgiven in one fell swoop. However, I doubt my bank would be so forgiving since I pay my mortgage on time every month without fail. I suspect they'll only forgive the deadbeats.

If I really thought all debts would be forgiven, I'd be out there buying everything in sight to the point that my credit card would be almost too hot to touch! I'd also be taking out a huge HELOC.

Just curious - if you really believe this will happen, why aren't you out there maximizing your debt?

I think a lot more debt will end up being cancelled just because of default by the debtor, but debt will likely endure where the debtor maintains an income stream to the creditor, until perhaps the defaults are such an overwhelming majority a jubilee happens in effect.

I think we'll never end up actually borrowing the trillions to cover the future SS/medicare obligations etc. because 1. no one will loan us that much and 2. the government will simply change the rules to reduce the benifits. But the ponzi scheme of borrowing will still continue until it can't anymore.

Soon there will be 2 groups of people. Those in line for their government goodies, and those employed by the government to hand out the goodies. Hmm...I think there might be something missing from this equation, but I'm sure the Fed will make it work somehow.

I have heard the concept of debtors' prison brought up too many times in too many areas over the last 6 months to feel comfortable in running out to buy a new plasma TV on plastic that I don't intend to pay for.

Unlike many areas in the rest of the world, folks in the US are not fearful of jail for not paying back what is borrowed. We also used to be shamed by foreclosure and bankruptcy, but now people don't even seem to mind that, blaming it on circumstance and comforted by the fact that everyone is in the same boat.

If, as many have said on this site, the banksters are the real owners of this country, they will reach a point where a new order must be reached to reverse this growing mindset. Look at the changes to the bankruptcy laws over the past few years. For those not in the US, let's just say they are not in the borrower's favor.

I still believe getting out of debt and not expecting those in debt to be relieved makes for the best plan at this point.

Mike, think from a banker's perspective and you see the "other way out."

Servitude has been the common hierarchical relationship to order human society throughout history. Only the last 200 years has tried to create something else, though it has failed. So our current mindset is very distorted and causes us to think "you're crazy to say servitude...we're free!" I suggest we haven't been free for a long time given a govt that keeps us tame on the farm while the treasury and monetary/banking system farms our productivity up the chain to the banking centers so they can profit from the core money while recycling electronic digits out giving people worthless money that tends toward zero during normal inflation. Then assets devalue and get sucked back up the chain in deflation leaving people with negative net worth. Which leaves us with a situation where banks have a legal claim over those people's future productivity. The bigger the debt, the stronger the grip over the person's life. The question is whether our government is now part of that banking system or if it is of by for the people. If the latter, you're right, we'll see jubilee. If the former, we'll see work programs, debt prisons (won't be actual brick/mortar prisons...in some ways an oversized mortgage makes the home itself a debt prison), etc. I think the evidence is clear which one we have given the government's ruthless desire to steal trillions from us and hand it to the banking system.

As of yesterday we had just over 3000 confirmed cases of H1N1, 120 or so had been hospitalised and 3 have died... all of those three had other complicating factors, e.g one was a late stage Cancer patient, not sure on the other 2 but they did have other major health issues.

We recently had a spate of sports players getting sick, and they were discussing cancelling some games, however they didn't and it all seemed to pass over without too many issues.

Mike

I wonder if you have considered, that if you are found to be creating debt with intention not to pay it off, you may actually end up in more trouble if they decide not to wipe the debts, but instead turn it into community service or something similar.

In regard to the initial post. Here in Australia, people are just as blind as in the US. I have trie to discuss what's going on and have encouraged so many friend to watch the CC, but they all just laugh it off as a CT and say that the government will do what is right for us. I used to think I was a bit nuts, now I realise that it's the other 90% of the poulation that are crazy.

"However, I find it hard to believe that all the banks will cancel all mortgage debt and credit card debt. If that were even a remote possibility, I would expect that millions of folks would be running around charging their credit cards to the hilt and mortgaging themselves to a fare-thee-well."

You've probably seen this Sam; it speaks to your if-then:

At least one guy is apparently thinking that those cards will never need to be repaid.

Well Rog, we've bought some drums, and soon I hope to be making methane and then working out a way to run the mower on it. I know it's been done before. In the meantime, I am reducing the amount of grass that needs cutting, and hopefully before 2012 when AUS oil situation will be dire I won't have to mow at all...!

Swine flu is merely a distraction from the REAL issues IMO. We've had 3 deaths here, but they were all compromised patients with cancer or respiratory problems or obesity/diabetes..... they were standing dead, for want of a better expression.

"Mike, think from a banker's perspective and you see the "other way out."". My brain hurts just trying..! :-)

I'm not advocating getting into debt with no intention to repay, let's get this straight. That goes against all my anti-consumption principles to start with. I totally agree with you re freedom.

A debt is only worth anything to the creditor if the debtor pays. Putting people in jail for not paying, costs more than the debt, and you can't put a few dozen million people in jail without going even more broke I'm afraid.

Ever heard of revolution? That's what it'll take. The next 20 years will be unlike the last 20...

"However, I find it hard to believe that all the banks will cancel all mortgage debt and credit card debt. If that were even a remote possibility, I would expect that millions of folks would be running around charging their credit cards to the hilt and mortgaging themselves to a fare-thee-well."

You've probably seen this Sam; it speaks to your if-then:

At least one guy is apparently thinking that those cards will never need to be repaid.

Edit: If that wasn't entertaining enough:

Good Grief! If this is an example of an average American, I'm moving to another country tomorrow!

Good Grief! If this is an example of an average American, I'm moving to another country tomorrow!

I would much rather have this guy breaking crap and getting attention than the millions of people sitting a home watching the latest garbage on TV without a care in the world about the Economy or the loss of freedom occurring in our country. He may be rude, and a total redneck, but I'm glad we have people like him who care no matter how they express it.

Personally I like the way he turned off his TV. Maybe if everybody turned their TV off like this we would have a real world that makes some sense not to mention being happier with each other. I haven't laughed this hard for along time. Thanks for that link.

Good Grief! If this is an example of an average American, I'm moving to another country tomorrow!

Sam - I thought the same thing! I turned the video off, right after the brief silver scene. What a winner! And these are the people we have to compete with in the future?

On another note: It could be my imagination, but everything I read seems to indicate the next big "something" is right around the corner. It's hard for me put into words, exactly, but maybe things are about to come to a head? California nearing total insolvency, Lots of people looking for the end of the market rally, and I noticed that Chris has been posting something nearly every day, even for us 'freeloaders'.

"It could be my imagination, but everything I read seems to indicate the next big "something" is right around the corner. It's hard for me put into words, exactly, but maybe things are about to come to a head?"

I expressed the same sentiment to my republican roommate last night after I unwillingly realized the true meaning of the "Record Bonuses at Goldman Sachs." That is to say, I told my roommate (a native New Yorker) to expect truck bombs at various Goldman Sachs buildings within the near future. There is no way that this kind of middle-class sacking can continue much longer without someone--in truly righteous fashion--striking back in response to the destruction of innocent lives that Goldman has brought about. It's a matter of time. Period.

I, unlike you Tx_floods, have no problem ennunciating--aloud--"words" about what exactly is about to "come to a head." I, for one, will feel a little closer to what I use to feel about being American when someone finally initiates the cascade of just actions that have been grossly neglected for far too long; "too long" being more than 75 years according to Mike Taibbi (http://zerohedge.blogspot.com/2009/06/goldman-sachs-engineering-every-major.html).

I've been railing about Goldman's crimes for years now, only to encounter dumb stares. It's about time this stuff has made "the big time." I think Rolling Stone is the perfect venue for this type of expose, since that type of readership is impressionable, needs a cause, and will react in ways that those of us who are law fearing won't: let the hunter-gatherer, flight or fight response solve the now near century-long problem that our purported democracy has had no effect against. There truly is no other solution for this problem other than plugging the wholes in the sinking ship with the carcasses of the rats that gnawed the wholes in the hull...

Good Grief! If this is an example of an average American, I'm moving to another country tomorrow!

Wow this guy is the spitting image of one of my friends some years back, one who also had a love of destroying assorted crap, though usually with bullets (he didn't have an accent though). But what I really thought was amusing and twisted was seeing that this guy is probably far better informed than the average American

"Just curious - if you really believe this will happen, why aren't you out there maximizing your debt?"

Timing mainly. As sure as I'm certain it will one day happen, I'm not holding my breath about the event ocurring any time soon! In fact, what bothers me most about this coming perfect storm is the uncertainty of it all. What will happen? When? In what order? How can you plan anything when you know nothing about coming events, with any certainty? So, I'm reducing my debt burden as fast as my wife can make the money!! And to put my cards on the table, we are paying our tiny mortgage at double the financial institution's required rate.

"I suspect they'll only forgive the deadbeats." Well, we're all deadbeats really, I mean we collectively went along with all this bullshit, myself included, for way too long. In the end, the funds to repay simply won't be there, and that's that.

I am chiming in as one still learning, so take it for what its worth as always.

Re: Swine Flu

You are absolutely right IMHO, Mike, it is a diversion but the problem is that it is still a pandemic. It is 3 times more infectious than seasonal flu (3 times as many people will probably get it per most authorities I have read) so even if fatality rate is same its still 3 times as many people getting sick and dying in addition to season flu. If CFR goes up then one can do the math. In my region (New York) it still a nasty bug-a 15 year old just died in Buffalo region and they've got another little kid with it on a vent. http://www.recombinomics.com/News/06220901/H1N1_Buffalo.html Of course people die everyday from many diseases but still...

A lot of this information is sourced from Avian flu diary, a reputable flu blog and they have links to WHO, CDC, etc....It will be back in the fall in all likelihood, hopefully milder (that is still a possibility) but maybe not. I agree though, MSM and gov is using it to deflect from the economy. But I would not throw baby out with said bath water yet.

I am hearing from a few people who are truly broke that the credit card companies are now coming after them in court. Two folks I know who have nothing are being taken to court. What do the credit card companies want? What is it they think they will get? Are other people seeing this?

Ladies and Gentlemen, we are heading for Force Majeure at an alarming rate. Force Majeure, will lead to a bank holiday that will lead to the ruin of the dollar and potentially martial law.

Remember this phrase "Force Majeure". If it is called it will happen at 12:30 after Europe and Asian markets are down and most people are at lunch. If you hear this called, get to your bank ASAP. Get the maximum amount of money out and get to the stores and get canned food, get gasoline, get dried food, get more propane for your grille and water.

Once people hear of this and the MSM explains it to the population that night you will have a run on the banks and the grocery stores over the next day. Assuming the banks will be open, get them maximum amount of money out again the next day if you can and hold it. The third day, the banks and markets will most likely close and bank holiday will set in for a period of time.

In my opinion, if utilities (water, natural gas, electricity) are maintained at a reasonable level:

If this bank holiday only lasts 2 weeks and utilities are maintained in general, we should see stress but no major upheaval. I only say this due to the reasoning that most people have about 2 to 3 weeks with of food on hand and if you have water to drink, a normal way to cook food, and electricity for our toys we should be fine.

If this bank holiday lasts 3 weeks, signs of stress will start. People will start to get hungry and more desperate but with help from local food banks and community support we should get through it. Rioting in major cities will start as people get hungry.

If this bank holiday lasts 4 weeks, signs of stress will turn into much more crime and desperation. I do not believe a complete unraveling of society but in some areas this will start and riots will begin for food more wide spread into the Burbs and smaller cities.

If this bank holiday lasts 5 weeks or more, desperation will be common, riots and looting for food will become a norm. Society will be to unraveling and with each day it will exponentially get worse and worse.

In my opinion, if utilities (water, natural gas, electricity) are NOT maintained at a reasonable level:

If this bank holiday only lasts 1 weeks, we should see stress but no major upheaval, except in major cities. I only say this due to the reasoning that most people have about 2 to 3 weeks with of food a on hand and having about 0.5 to 1 weeks worth of water on hand.

If this bank holiday lasts 2 weeks, major signs of stress will start. People will start to get thirsty and ill due to sub standard water they may be drinking but with major help local food banks and community support we may get through it. Rioting in major cities will start as people get hungry and thirsty.

If this bank holiday lasts 3 weeks or more, desperation will be common, riots and looting for water will become a norm. Society will be unraveling and with each day it will exponentially get worse and worse. Illness due to sub standard water will become common.

These are my general opinions but depending on the area will depend on the time frame. If you are in a hurricane area and have preparations for disaster than you will have longer time frames. If you are in more rural communities where you have wells and are more disconnected from the grid you will have much longer time frames if not being sustainable at a reasonable level. If you in the inner parts of our big cities with no preparation, you may have much shorter time frames (think Katrina in all cities in the USA).

For what it is worth, I hope this helps and it may give you something to think about. Perhaps the question: How long do you think your area will hold it together before an unraveling of society?

"Is a Democratic administration and a Democratically controlled Congress presiding over one of the most regressive wealth transfers in history? Roosevelt Institute Braintruster Marshall Auerback investigates.

State and local governments have been forced into draconian budget cuts, firing workers who are among the most reliable in making their mortgage payments–when they have jobs: firemen, policemen, teachers, civil servants.

Yet the Obama administration won’t spend even a small fraction of what it has wasted on the banks to cover state shortfalls. The guarantee of $5.5bn in short term notes for California was deemed to be fiscally irresponsible, yet hundreds of billions have already been allocated to the likes of Citigroup, AIG, and Goldman Sachs, all of whom have already beefed up salaries and bonuses as they emerge from the embrace of the federal government."

Hello Denise: Thank you for that link. I honestly can't decide what to think about h1n1. The infection rate makes reminds me of the first wave of the 1918 flu. I find the Baxter faux pas mind boggling, and every time I read about the genetic composition questions it makes me take pause. I have no idea which way it is going to go, but it is one of those blips on the media radar that I think bears watching.

Taking the information above plus what the government is doing with all the legislation as well as teh biggest budget in history and taking the worst case senerio view, it looks like we are looking at a Bank Holiday around mid September.

Can this be stopped, of course but I just can not see it right now. I am hopeful that this becomes a deep W recession but for my family, I want to be ready for the worst case senerio. So I have thought of what could happens with a bank holiday and when to "bug out".

Statements such as the Federal Debt is $17,789 per person has never made any sense to me. To pay that amount off, a Bill Gates or Warren Buffett would say "take it out of petty cash and don't bother me with trivial matters again." while a part time minimum wage earner might get deeply depressed and say that can't be real. There is no way I can pay off that amount. So what is a reasonable number?

Over the years, I've been following and plotting a debt to tax revenue factor of National Debt over Federal Individual Income Tax Revenue under the assumption that for every dollar I pay in taxes, the Federal government has x number of $ of debt in my name. I don't use corporate debt because that debt is paid through my purchasing of their products and services.

In 1979, the above ratio was 3.79 while in 2008, that figure rose to 8.75. This means that if someone paid $5,000 in 2008 Income taxes, there would be 8.75 * 5,000 or $43,750 of debt in that person's name. To me that's a more realistic number. The ratio will be a lot higher in 2009 as revenue drops and the debt increases.

Also note that the amount of debt has increased by a factor 2.3 since 1979.

"Just curious - if you really believe this will happen, why aren't you out there maximizing your debt?"

Timing mainly. As sure as I'm certain it will one day happen, I'm not holding my breath about the event ocurring any time soon! In fact, what bothers me most about this coming perfect storm is the uncertainty of it all. What will happen? When? In what order? How can you plan anything when you know nothing about coming events, with any certainty? So, I'm reducing my debt burden as fast as my wife can make the money!! And to put my cards on the table, we are paying our tiny mortgage at double the financial institution's required rate.

"I suspect they'll only forgive the deadbeats." Well, we're all deadbeats really, I mean we collectively went along with all this bullshit, myself included, for way too long. In the end, the funds to repay simply won't be there, and that's that.

Mike

Mike,

So true. The exponential function exposes the problem. We are totally reliant on the Fed to create the money we need to pay interest on debt out of thin air. Currently they are obliging but those funds to are only going to the banks. The rest of the population will slowly ratchet into default. IMHO the current Cap and Trade legislation will be used as the excuse to tighten the noose another notch. I expect to hear something on the order that the climate change issue has to be dealt with and the public will simply have to pony up on the cost. This approach to the problem is simply another method for Wall Street to capitalize on real issues with a "bait and switch routine".

The amazing part of all of this is that we (Americans especially) are totally unaware that the USA has been operating out of bankruptcy since the Civil War and we are now in our third proceeding. The Uniforn Commercial Code is the "Law" the US is operating under and it is a corporate law system that takes precedence during bankruptcy. Under the UCC, bankruptcy can only last 70 years and then restitution is due. A brief history is presented here ( the site charges for other documents):

We went bankrupt in 1859 and that caused the Civil War. 70 years later that had to be resolved and that was 1929. Roosevelt, operating under the UCC "legally" did what he did to solve that bankruptcy. 1999 was the last round and Bush solved that one so to speak. The point here is that bankruptcy IS a national emergency and power is transferred to the president who operates under executive orders to do whatever is deemed necessary. The legislature is simply there to keep our attention incorrectly focused as is described in "The Bankers Manefest of 1892". This manefesto was revealed to congress by US Congressman Charles Lindberg anound the time the Fed was created and described here:

A very interesting plan indeed but IMHO I do not think the greedy bankers understood the basics of exponential growth. All bets on how this will unfold and when are off!

That said, understanding the UCC laws we operate under and the remedies available to us is not only a big time consuming task, but it is vital if we want to have a grasp of what is going on behind the scenes but all incredibly legal. It also has huge implications as regards our legal position with debt. I don't have the source here now but reading the definition of a "citizen" in the Blacks Law dictionary is very revealing as to just how "soverign" we are when viewed as a commercial entity. If you don't think you are a commercial entity then read the UCC as regards YOUR Social Security Trust which is administered by your faithful trustee .... the Secretary of the Treasury.

Not sure about Australia but that is how it is set up here. And most of the world does use Blacks Law as a basis for commerce and corporate law. I will be working on a thread on this later as I collect references and knowledge.

A very interesting plan indeed but IMHO I do not think the greedy bankers understood the basics of exponential growth. All bets on how this will unfold and when are off!

I think you're right about the bankers 100 years ago. The bankers today on the other hand are quite familiar with it. They have the benefit of their Excel financial models which very clearly layout the need for exponential growth...every DCF includes the "terminal value" calculation or the "perpetual growth" formula. And I think their awareness of it at this time, and their recognition that infinite growth doesn't exist, is why you see their agenda being pumped through the politicians includes a massive police state, foreign wars, paranoia about certain political groups, new control mechanisms like the carbon tax, etc. They know exponential growth is crumbling, and they want to control how it unfolds rather than leaving it up to evolution.